QE Hopes are Fading

The CPI figures from Britain indicate that inflationary pressures have resurfaced, owing to the recent hike in utility tariffs and some upward pressure from food prices. With inflation data lowering expectations of further stimulus, tomorrow’s BoE Inflation Report will be a key highlight on traders’ radar, for latest economic forecasts and insights into prospects of further QE. Meanwhile, disagreements between policymakers have prevented disbursement of immediate aid to Athens. With international lenders once again pushing Greece to the brink, market focus is on Greece’s auction of treasury bills in today’s session.

Pound Sterling – UK Markets

The Pound continued to gain momentum against the Euro in today’s session, as prospects of the BoE embracing further stimulus measures diminished after data this morning revealed that inflationary pressures in the UK resurfaced for October, reflecting the recent hike in utility fees. The CPI climbed to 2.7% for October from 2.2% in the previous month. Annually, core output prices rose, while input prices unexpectedly climbed. However, Sterling continued to trade lower against the greenback on account of safe haven buying. Meanwhile, following upbeat third quarter growth in the British economy, the OECD’s composite leading indicators show that UK’s economic growth is gathering some momentum, despite the evident weakness in the latest PMI releases. Following the pickup in inflation, traders now eagerly await tomorrow’s BoE inflation report for cues on BoE’s next move. Meanwhile, traders are also expected to follow economic releases and developments from the Eurozone for further direction.

US Dollar – US Markets

The Eurozone policymakers have once again failed to break the deadlock in releasing crucial aid funds for Greece. Against this backdrop, markets will be closely eyeing today’s auction of treasury bills in Greece, which is critical to prevent a default on its debt repayments later this week. The prevalent concerns over Greece continue to curb risk appetite, thereby providing a fillip to the greenback against its peers in today’s session. Global growth prospects received a setback after Moody’s cut its growth forecasts for major global economies, broadly due to threat of a deep recession in the Eurozone, the US fiscal cliff and weakness in emerging market economies. In today’s session traders are expected to closely follow German and Eurozone economic sentiment index for further direction. Additionally, small business optimism index from the US is expected to provide insights into underlying sentiment in the economy, while the economic optimism index is expected to offer insights into the mood among consumers, in the midst of concerns about the “fiscal cliff”.

Euro – European Markets

The Euro continued its downward spiral against the US Dollar and Sterling in today’s session, as Eurozone policymakers stopped short of releasing the next aid tranche for Greece. Today, all eyes are set on Greece’s Treasury bill auction for refinancing a €5 billion issue maturing on Friday. Meanwhile, the President of the Eurogroup, Jean-Claude Juncker, indicated that Greece would be offered two more years to meet its deficit targets. Juncker’s statement was strongly objected by the IMF Chief, Christine Lagarde, threatening to deepen the rift between the region’s policymakers. The German Chancellor, Angela Merkel, reiterated her stance that there would be no renegotiation of Portugal’s aid package offered by the Troika. Earlier today, data revealed that French non-farm payrolls continued to decline for the third quarter, while current account deficit narrowed for September. The economic sentiment index from Germany and the Eurozone will be the key for direction to the EUR in today’s session.

Other Currencies – Highlights

The Aussie Dollar declined against the US Dollar and the Pound after data from the National Bank of Australia revealed that business conditions in Australia weakened to their lowest level in three and a half years for October, as slowdown in mining investments and cuts in government spending hurt the Australian economy. Additionally, high yield currencies traded lower in today’s session, as “risk on” sentiment took a back seat after concerns over Greece’s fiscal troubles came to the fore. In the midst of a looming threat of a Greek default, traders are expected to keep an eye on Greece’s auction of treasury bills later today. Apart from consumer confidence readings later today, traders are also expected to track inflation expectation figures due for release in the latter half of the week for further cues about the Australian economy and the stance that the Reserve Bank of Australia would adopt in its next monetary policy meeting.